Regular Rate of Pay (RRP)

Regular Rate of Pay (RRP) is a payroll concept under the Fair Labor Standards Act (FLSA) which is a federal law that protects workers by setting standards for their overtime pay and other wage-related protections.

The law states that non-exempt employees who work more than 40 hours in a work week are entitled to overtime pay. Overtime pay for the hours that exceed 40 hours during a given work week must be calculated at a rate of at least 1.5x their "regular rate.

Keep in mind: There are also state-specific overtime laws.

RRP overview

Accurately paying overtime is critical for both employer compliance and employee protection under the FLSA.

Reasons to comply

  • Complaints/Legal Claims: Employees can file a claim under the FLSA with the DOL Wage and Hour Division for up to 3 years if the violation was willful, and 2 years if not. Employees can file private actions in court seeking recovery of unpaid overtime, liquidated damages, interest, penalties, and other derivative claims. 
  • Damages: Under the FLSA, employees can be awarded backpay, liquidated damages, fees, and costs in litigation.
  • Penalties: Employers who willfully or repeatedly violate FLSA overtime requirements are subject to civil penalties of up to $2,451 per violation and willful violations may result in criminal prosecution and fines up to $10,000 and imprisonment up to 6 months for 2nd offenses.
  • State Law Claims: In states with regular rate of pay requirements, employees can also bring claims with state agencies or in state courts. Those may carry different or additional causes of action including wage statements, record retention, damages, or penalties. 
  • Record Retention: The FLSA requires that records detailing non-exempt employees’ hours worked and wages paid must be kept for no less than 3 years from the date of last entry.
    • Note: The court can use the employees’ accounting of hours worked in the absence of the employer’s record.
RRP calculation

The regular rate is determined by summing the employee’s total compensation in a single workweek (minus excludable payments) and dividing it by the number of hours worked during the work week. 

Essentially, the regular rate converts an employee's eligible supplemental payments to an hourly rate also, to then determine overtime pay (see the Federal Regulation on Overtime Compensation).

             Total Earnings* - Excluded Earnings*

RRP =     -----------------------------------------------

                        Total Hours Worked*

Included vs. excluded earnings for RRP

An employee's regular rate is the base hourly rate used for calculating overtime pay. When an employee is compensated solely by an hourly wage, the employee's regular rate is the same as the hourly wage.

However, when an employee is also compensated for eligible supplemental payments of earnings (such as production bonuses), these payments should be included in an employee's regular rate to accurately calculate overtime pay.

Included pay types (non-exhaustive)

  • All hourly wages
  • Non-discretionary bonus (for pre-established incentives, like production or referral bonuses)
  • Commissions
  • On-call pay

If you’re creating an "other" custom earning in Gusto, included pay types could be wages earned from shift differentials, piece-rate pay, hazard pay, or make-up pay. Full list of inclusions here.*

*Note: Gusto treats the "Correction Payment" field as an additional earning to be included in overtime pay

Excluded pay types (non-exhaustive)

  • Cash tips
  • Paycheck tips
  • Discretionary bonus (for optional gifts, like holiday or end-of-year bonuses) 
  • Reimbursements (like travel and meal expenses)
  • Employer contributions to 401K/Healthcare

If you’re creating an "other" custom earning in Gusto, excluded pay types could be wages earned from profit-sharing, retirement contributions, stock options, or equity. Here’s a full list of exclusions*.

How the calculation is set up

The overtime calculation will be based on a RRP that consists of the following rules:

  1. Set up/make sure that the “Start of workweek” for each pay schedule is set to the desired weekday.
  2. Make sure custom earnings are set up properly and categorized (ex. included in or excluded from OT calculation).
  3. Distribute hours and earnings to each applicable week via the work week breakdown in the payroll flow.
  4. In certain cases, select additional earnings (beyond the hourly rate) would be included to calculate the overtime premium.
  5. For all OT employees with multiple pay jobs/pay rates, the overtime rate is based on a week-by-week weighted average formula, across both jobs.
Example calculation

Cynthia is a non-exempt employee and is paid $15.00 an hour. One week, she worked 45 hours and earned a $200 non-discretionary bonus. The following week, she worked 44 hours. What is Cynthia’s gross pay for each week?

Week 1 calculation

RRP = ($15 x 45 hours) + $200 / 45 = $19.44
Overtime Premium = RRP * .5 = $9.72/hr
Overtime Pay = $9.72/hr * 5 hrs = $48.61
Gross pay = $675 regular wages + $200 ND bonus + $48.61 
Total due: $923.61

Week 2 calculation

RRP = $15.00 (there are no additional includible earnings)
Overtime Premium = $15 * .5 = 7.50
Overtime pay = $7.50 * 4hrs = $30
Gross pay = ($15 * 44 hours) + ($7.50 * 4hrs) = $690

How to use work week breakdown

Workweek breakdown allows you to accurately record hours and earnings on a per-week basis in order for overtime data to be calculated accurately. By default, the work week breakdown drawer appears in payroll whenever overtime and at least one included earnings data is entered. This is reflective of the Streamlined Recording default selection under "the Non-Exempt Recordkeeping" section in Pay settings.

If you instead select the Detailed Reporting record keeping option under "the Non-Exempt Recordkeeping" section in Pay Settings, the work week breakdown drawer will appear in payroll for all "overtime-applicable" hours and earnings.

We recommend that you appropriately log data into weekly inputs across the pay period for the most accurate pay. If you choose not to do that, we'll automatically evenly distribute the data across all work weeks. 

Note: If hours were synced from Gusto Time tracking, the system will automatically distribute the hours based on the work week.

RRP eligibility

FLSA status Employee type in Gusto Eligibility for Gusto's RRP
Non-exempt Eligible if on a weekly/bi-weekly pay schedule
Exempt Not eligible
Manage pay type inclusions and exclusions

Certain earning types in payroll are automatically defaulted to being included or excluded by Gusto in accordance with the DOL.

  • You'll have the ability to use custom earnings to categorize your inclusions/exclusions into overtime calculations.
  • In the first 30 days of receiving the work week breakdown feature, you'll have 30 days to review and re-categorize any existing custom earnings.
  • Any new earnings created and saved after the 30 days cannot be recategorized. However, they can be deactivated, and new ones created.